Underpinned by strong filial piety values, ageing parents in Asia have historically relied on their adult children for financial provision. With the heightened inflation, slowing wage growth and other changes in family dynamics, however, this may no longer be a viable option.

According to Manulife Investment Management head of wealth and asset management Michael Dommermuth, Asia accounts for 63% of the elderly population worldwide. Despite this, the region only accounts for about 12% of global pension reserves.

China, for instance, has pension reserves of about 10% of its GDP, worth about US$1.5 trillion ($2.02 trillion). However, China’s population peaked a decade earlier than expected, significantly affecting its future demographic dividend. Over the remaining century, its population will be cut in half — reduced by about 650 million at a rate of nine million people per year. Although the pension reserves are expected to grow, they will be increasingly insufficient, says Dommermuth.

In comparison, Singapore is in a better position with about 80% of the GDP pension reserves. The government is taking proactive steps to address retirement funding issues, complemented with systems such as MediSave and MediShield.

That said, Singapore has a rapidly ageing population, and has simultaneously one of the world’s lowest fertility rates and longest life expectancy. In 2010, about one in 10 Singaporeans were aged 65 and above. It has risen to about one in six a decade later, and is expected to reach one in four by 2030.

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Coupled with escalating healthcare costs and changing family structures, Singaporeans are bound to have challenges in retiring comfortably. This is especially so with the rise of the “sandwich generation” — or the generation obliged to care for their elderly parents and young children — pushing their retirement planning down their priority list.

This is not exclusive to Singapore. Manulife’s research found that less than half of those in Asia have a realistic retirement plan in place, says Dommermuth. To make matters worse, the region also has substantial gender-related retirement challenges.

Specifically, women are more disadvantaged than men due to their generally lower labour participation rate, aside from being more prone to interruptions that have lifelong implications towards their financial well-being, such as the need to put their careers on hold to care for children and older people. In its study, Manulife also learned that women earn reduced income after giving birth, resulting in lower lifetime earnings and slower accumulation of pension benefits.

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The firm can test this by examining its experience with Hong Kong’s Mandatory Provident Fund, where one in four working households has a product with Manulife. Up to the age of 40, males and females have a perfect parity of average balances before a divergence occurs and widens in the older age brackets. By the retirement age of 65, the gap has widened to about 28%, says Dommermuth.

“The gap is probably much larger than that because we do not include females who never entered the formal labour force. This is concerning because they tend to be younger than their male spouses. They also typically live longer, meaning they will be alone for long periods on average. They are confronted with this deficit of retirement reserves when their family support system breaks down,” he adds.

Compounding the issue is that traditionally, Asians are known to follow common generational wisdom to invest as much as they can in real estate “barbell” with cash deposits. While this was a great piece of advice decades ago, it may be less sage in the current landscape of shrinking population and limited demographic dividend, says Dommermuth.

Citing a survey by Ipsos on the Singapore mass affluent, Dommermuth points out that 44% of respondents say they prefer to invest in residential real estate over other asset classes, such as the S&P 500. From 1990 to today, however, the S&P 500 has increased by 9.8 times versus Singapore residential real estate’s 4 times, Dommermuth says. This, however, still does not dissuade investors from the pervasive view that real estate is the key form of investment counterweighted with bank deposits, he adds.

“When asked about the main anchor of their retirement funding, an overwhelming majority, or 80%, of those in Singapore say cash and bank deposits, versus the regional average of around 51%. The problem with that is that all our research suggests that when you put your money into bank deposits and strip out the tax and inflation, you are left with a negative return — your money is worth less tomorrow than what it is today,” says Dommermuth.

However, it is not all doom and gloom. Dommermuth says those surveyed are becoming more financially astute and are keen on doing more to change their financial situation where possible. A majority (85%) of those surveyed agreed that they would benefit from access to increased resources to educate them on achieving a healthier retirement.

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Dommermuth says it is crucial that Asian investors better prepare for their impending retirement with a diversified retirement fund portfolio and explore different solutions. As there is no one-size-fits-all approach to retirement, investors must consider their portfolio’s growth potential, income potential, capital protection and flexibility to tailor their retirement solution to their needs.

To start, they can complement their portfolios with products that offer monthly dividend payout, or retirement insurance savings plans, which can help them accumulate wealth and receive insurance protection simultaneously. This can go hand in hand with their existing compulsory pension savings fund, such as the Central Provident Fund (CPF).

Regarding retirement planning, Dommermuth says there is no such thing as being too early — starting early means investors can enjoy longer compounding investments which will prove fruitful in their sunset years.

He adds: “Singapore has done well in preparing its people for a comfortable retirement; the government has been visionary in implementing the key ageing mechanisms. No amount of government intervention can fully prepare the marketplace for what is unfolding amid slowing economic growth and rising costs. Notwithstanding the generous provisions of CPF, investors will still need to be more resourceful in cushioning the impact.”

Dommermuth says: “Additionally, family financial support will decay over time. An increasing number of people in Singapore will have to work, which is not something that everybody can do. Our survey indicates that 56% of people across Asia intend to work after retirement. While Singapore is better positioned than most, it does not negate the fact that this will severely pressure the economy and society.”

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